CEU Electronic Theses and Dissertations, 2008
| Author | Salkin, Svetoslav Asenov |
|---|---|
| Title | Signalling and Commitment Properties of Partial Privatization |
| Summary | This thesis deals with the political economy of privatization. Chapters one and two review the empirical and formal literatures on privatization and argue that informational asymmetries with respect to the value of the enterprise prepared for sale, workers’ opposition, and rent seeking are important obstacles to privatization plans. Chapter three presents two simple formalizations of the idea that a government determined to privatize an enterprise may need to privatize only a part of that enterprise because of asymmetric information. Partial privatization signals the enterprise’s worth to investors and is therefore a second best strategy available to a government, which seeks to maximize revenues from privatization and enhance enterprise efficiency. Hence partial privatization need not improve enterprise performance, rather better performing enterprises tend to be partially privatized. On the other hand, privatization raises concerns about future job cuts and therefore workers often oppose privatization plans. Because of this resistance, governments tend to scale down, if not entirely abandon, initially quite ambitious privatization programs. Whenever privatization plans are not fully abandoned, governments could implement partial privatization, selling either a fraction of the enterprise or separate units belonging to it, in a bid to secure the workers’ acquiescence. How can partial privatization work as a mechanism that commits the government to cater to workers’ interests ex post? Assuming that the average worker cares about employment more than about efficiency and profits, chapter four suggests the following mechanism: under certain conditions, partial privatization softens the budget constraint that the prospective enterprise owner would face, which will lead to the implementation of a larger number of investment projects, regardless of their efficiency, than otherwise and thereby increase employment above the optimal level. Such a commitment device on the part of the selling government is credible because it relies on the government’s purely economic incentives, rather than just on its benevolence, paternalism or political ideology. Chapter four also speculates that the continuous nature of the government’s involvement, namely the incremental provision of the soft budget, resolves the flipside of the commitment problem, i.e. ensures that workers would cast their votes for the government in question. Finally, chapter five argues that governments may refuse to privatize enterprises that would be valuable to their future owners primarily in terms of the subsidies that can be extracted from the state. Changes in the market environment effected by privatization imply changes in the role and nature of rent (or subsidy) seeking activities. Chapter five makes use of some of the results in the literature on rent seeking contests to identify factors that affect the amount of resources devoted to such socially wasteful activities. |
| Supervisor | Horvath, Julius |
| Department | Political Science PhD |
| Full text | https://www.etd.ceu.edu/2008/pphsas01.pdf |
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